Above The Fray

Story Telling

After spending more than 25 years in the investment business, I do have the luxury of having developed an extensive rolodex of money manager friends and contacts. Some of the most fun and the most productive times I have in this business occur when I am meeting with other money managers socially. I can tell you that the conversation always turns to stocks. What are you buying and why are you buying it? Virtually all of the money managers I know love to talk about their investments with other managers. I think this is in part because most of us feel validated if we get “two thumbs up” for an investment idea from a knowledgeable and respected colleague in our profession. While all money managers are generally able to do a deep dive into the numbers and facts about the companies they own, the very best money managers I know are able to distill the essence of the investment thesis for a company into a few simple, easy to understand and often humorous points. They are able to tell a good story. It is this art of story telling that is a misunderstood and underappreciated part of long term investment success.

So let me take one of our investments and try to tell you a story that goes to the essence of why we own it. I should confess that story telling has not come easily to me during my
investment career. Ask me what time it is and I will usually start by telling you about the intricacies of making a precision Swiss watch! By the way, Swiss watch making is a fabulous business and is something I could see us owning at some point. Sorry, I digress!

One of our long term investments is Schindler Holdings which is the world’s second largest elevator and escalator company. What is the essence of the investment case for Schindler? What makes it special? What is its competitive advantage? Simply put, it comes down to two key concepts. First, the world continues to get more urban and more vertical. This is a simple way of describing the sustainable long term demand for Schindler’s elevators and escalators. I wish I could take credit for this description but I can’t. It came from a great money manager and friend who is also a Schindler shareholder. A second simple concept in properly understanding Schindler is that every installation today leads to service and maintenance contracts in the future. I liken this to Gillette that gets to sell you razor blades (maintenance and service) forever after selling you the razor (the elevator or escalator installation) once. I believe that these two simple concepts capture the essence of what makes Schindler a great investment. Please don’t misunderstand my point. At Stacey Muirhead we spend a lot of time thinking about the numbers and our estimate of Schindler’s intrinsic value. I can tell you all about revenue, margins and returns on capital. I can tell you all about Schindler’s net cash position and the market value of its minority stakes in Hyundai Elevators and ALSO. I can tell you all about its order backlog, market share and capital expenditures. All those things are important and help us in our investment decision making process. However, the essence of what makes Schindler great is that it supplies escalators and elevators to a world that continues to urbanize and go vertical as well as the notion that every new installation leads to ongoing maintenance and service. By the way, Schindler likes to bill itself as the company that moves over a billion people around the world each day. That is also great story telling.

Peter Lynch, the brilliant and now retired fund manager, used to describe this notion of story telling as the two minute drill. In his excellent book “One Up On Wall Street” he said the following:

Once you’re able to tell the story of a stock to your family, your friends or the dog (and I don’t mean “a guy on the bus says [it] is a takeover”) and so that even a child could understand it, then you have a proper grasp of the situation.

Expect to hear more story telling from us. It is an important determinant of long term investment success.

“Above the Fray” is a regular blog written by Jeffrey Stacey, Chairman and CEO of Stacey Muirhead Capital Management Ltd., which discusses items of interest related to investing, finance and business. This is not a solicitation.

I enjoy your blog and appreciate that time taken to write it is also time taken away from other activities. There were some interesting articles recently describing how elevators in private homes, once seen as an extravagant luxury, are now becoming more commonplace as boomers decide to stay in their homes longer. As an investor myself, I am interested in finding out who the suppliers of these home elevators are.

BTW, sometimes the two minute drill is also referred to as “the elevator pitch”.